02517cam a22002657 4500001000700000003000500007005001700012008004100029100002400070245011500094260006600209490004200275500001700317520133600334530006101670538007201731538003601803690005601839690008801895690007401983710004202057830007702099856003802176856003702214w14243NBER20180218003711.0180218s2008 mau||||fs|||| 000 0 eng d1 aHansen, Lars Peter.10aModeling the Long Runh[electronic resource]:bValuation in Dynamic Stochastic Economies /cLars Peter Hansen. aCambridge, Mass.bNational Bureau of Economic Researchc2008.1 aNBER working paper seriesvno. w14243 aAugust 2008.3 aI explore the equilibrium value implications of economic models that incorporate reactions to a stochastic environment. I propose a dynamic value decomposition (DVD) designed to distinguish components of an underlying economic model that influence values over long horizons from components that impact only the short run. To quantify the role of parameter sensitivity and to impute long-term risk prices, I develop an associated perturbation technique. Finally, I use DVD methods to study formally some example economies and to speculate about others. A DVD is enabled by constructing operators indexed by the elapsed time between the date of pricing and the date of the future payoff (i.e. the future realization of a consumption claim). Thus formulated, methods from applied mathematics permit me to characterize valuation behavior as the time between price determination and payoff realization becomes large. An outcome of this analysis is the construction of a multiplicative martingale component of a process that is used to represent valuation in a dynamic economy with stochastic growth. I contrast the differences in the applicability between this multiplicative martingale method and an additive martingale method familiar from time series analysis that is used to identify shocks with long-run economic consequences. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aC0 - General2Journal of Economic Literature class. 7aE44 - Financial Markets and the Macroeconomy2Journal of Economic Literature class. 7aG1 - General Financial Markets2Journal of Economic Literature class.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w14243.4 uhttp://www.nber.org/papers/w1424341uhttp://dx.doi.org/10.3386/w14243